If you don’t sign your business contracts the right way, you could be personally liable if something goes wrong. This means the other party can go after your personal assets to satisfy a court judgment. In other words, your business entity (e.g., LLC, corporation, etc.) might not shield your personal stuff.
How is this mistake commonly made?
Sometimes the agreement will refer to you as a party without even mentioning your business by name. And the signature line is for you as an individual.
Or the contract will list you as a party in addition to your business entity. So you’d be signing both in your personal capacity and on behalf of the entity.
You may even see a variation where the party wants you to sign a separate personal guarantee of performance of the contract by your business.
A gray area is where the contract mentions your company as a party but everything is set up so that you sign it in your individual capacity instead of on behalf of your company. This often happens when a salesman is winging it without a lawyer or the other side patched together a contract without understanding how they’re supposed to be set up for signing.
Now a sneaky method of trying to impose personal liability is to add a clause where you’re agreeing to be individually liable if things go wrong even though the contract is supposedly between your entity and the other party.
And perhaps the most devious method of trying to impose personal liability is where the other party tries to get you to name them as an additional insured on your personal liability insurance policy even though you are not signing the contract as an individual.
So, how do you avoid these attempts to go after you personally for a business-to-business (B2B) deal?
Ideally, your contract is prepared by your business lawyer instead of the other party’s attorney.
And if you have to use the other party’s agreement for some reason, at least have your business attorney review and make recommendations on how to change the draft agreement to limit your personal liability exposure.
If you need help putting the right business contracts in place to protect you and your company, it’s probably time to schedule a phone consultation with Business Lawyer Mike Young.